The UK has to make a decision on membership of EMU in the next two years. The monetary and fiscal regimes in the Euro Area and in the UK do not differ greatly. However, we argue that membership of EMU will increase the stability of the economy and the credibility of the policy framework, and hence will enhance the prospects for growth and higher incomes and employment. There appear to be no major problems associated with joining EMU at around 1.50 euros to the pound, although there are risks to the UK if the euro appreciates against the dollar after we have entered. However, the costs associated with this risk have to be offset against the probability of the significant output gains that could come from EMU membership in the medium term.
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